Overvalued Stocks Raise the Earnings Bar
We have an alcoholic beverage company in the consumer staples sector, which is the most overvalued sector by 24.4%. We have a heavy construction materials company in the construction sector, which is the second most overvalued sector by 19.4%. Finally, on Friday morning we get earnings from one of the four "too big to fail" money center banks with the finance sector overvalued by 13.5%.
Three of the five stocks profiled today are overvalued, one by a whopping 68.5%. Three have buy ratings according to www.ValuEngine.com and two have hold ratings. One is slightly lower over the past 12 months, while four had significant double-digit gains. Two of these gainers are up by slightly more that 79%, which is another sign that the earnings bar is set quite high.
The upside for these stocks over the next 12 months is disappointing versus the past year as the biggest potential gain is only 11.7%, and one of the biggest gainer is expected to be slightly lower. Two of the five have elevated trailing 12 month price-to-earnings ratios. All five stocks are significantly above their 200-day simple moving averages, which is the downside risk in 2013 on what many on Wall Street call a reversion to the mean.
Here are my buy-and-trade profiles for this week's earnings stocks:
Reporting before the open on Tuesday, Monsanto (MON) ($96.11) is expected to earn 37 cents per share. This earnings bar is high as the stock set a multi-year high at $96.71 last week. The daily chart shows an overbought condition and the weekly chart is positive with the five-week modified moving average at $91.53. My quarterly value level is $89.86 with a weekly pivot at $96.92 and monthly risky level at $99.53.
Reporting after the close on Tuesday, Alcoa (AA) ($9.26) is expected to earn 7 cents per share. Alcoa moved above its 200-day SMA at $8.88 last week raising this earnings bar. The daily and weekly charts are positive with the five-week MMA at $8.70. My monthly value level is $7.50 with a weekly pivot at $8.85 and semiannual risky level at $11.52.
Reporting before the open on Wednesday, Constellation Brands (STZ) ($36.75) is expected to earn 55 cents per share. Constellation Brands set an all-time high at $37.57 last week so this earnings bar could not be any higher. The daily chart is positive, but the weekly chart is neutral as momentum is declining despite a weekly close solidly above the five-week MMA at $35.34. My annual value level lags at $30.65 with a weekly pivot at $34.37 and monthly risky level at $41.03.